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The Recruitment Agency Value Paradox

 

The rise of well intentioned, designed, financed and mandated in-house, outsourced and Hybrid TA functions in recent years has fundamentally changed Talent Acquisition and the role of Recruitment Agencies.

Historically, Recruitment and Search Agencies have played a dominant role in the Australian Corporate landscape. However, this dominance is not intrinsically tied to their value. It is more the case that the ubiquitous use of recruitment agencies was a product of having limited options or limited awareness. Agency recruitment undoubtedly produces hires but it is at ‘what cost’ that is increasingly questioned. The essence of the paradox is their operating framework and ‘value’.

Ground zero for Talent Acquisition is ‘Value’. Organisations generally weight ‘value’ on outcomes taking into consideration cost, quality, time, ease, risk mitigation, transparency, experience, internal and external perception, branding, confidence and efficiency. The definition of ‘value’ is unique to each organisation.

The Agency Premise

The most successful agency consultants are those that excel in business-to-business (B2B) sales. B2B selling is essential, as the recruitment process cannot take place until a pre-sale has resulted in an engagement. The prize is a lucrative fee, based on a percentage of the salary which has absolutely no reflection on the work undertaken.

In fact, when a consultant’s strength is in the art (or science) of recruitment and not sales, they are generally not given the opportunity or time to succeed in an agency environment. This is a contributing factor for consultant turnover.

Unfortunately, the ‘sell’ hasn’t evolved over the years. The hiring community still receive a clichéd motivation and capability spiel such as “we wish to partner and understand your business”, “we know the best talent”, “we have a database”, “I have been in the industry for X number years”, or “My Director has been in the industry for X number years”, “I know your competitors” and the list goes on. There is also the ‘fear’ angle such as “…risk in making a wrong hire”, “the cost of an empty desk”, “the impact on a bonus or performance review”, “client/project impacts”, etc.

Talent is in the Public Domain

Talent is now in the public domain, driven by the prevalence of professional and social networking and other channels to information. The proposition that has lucratively served agencies is threatened by the demand for genuine ‘value’ rather than mythical insight and access to talent. The ability to identify and engage with Talent has evolved and procuring it is no longer dependent on agency CV databases (most contain redundant information). Smart organisations have real workforce plans and dynamic talent pipelines to reduce their vacancy exposure that drives their urgency to engage agencies. The toolkit has evolved and capable recruitment consultants are still essential for successful recruitment, however experienced and capable Consultants are not exclusive to agencies!

It’s a Numbers Game

Agency Recruitment is a numbers game and there is a lot of money at stake and self-preservation is high. Agency managers scrutinise the number of jobs that the consultant is working on and what their likelihood will be to fill a given percentage of these to achieve revenue targets.

The focus is on closing out hires, which can be the antithesis to the ‘best interest’ of the Client and the Candidate. Unfortunately, the nature of this model dictates that solid agency-client relationships, and the fees generated, subsidise other client jobs that are not successfully recruited. In fact, there is no ‘loyalty reward’ in agency recruitment; success subsidises failure. Agencies claim that the best talent goes to loyal clients but the best talent will go where a fee can be generated.

It is all about the Agency

At the client’s expense, advertising is almost entirely agency branded and the talent relationships and contacts remain agency property. If multiple hires are made additional fees are charged which have no correlation to the additional work undertaken. Agencies will leverage these talent relationships and contacts and ‘float’ or ‘reverse market’ talent that has been generated at the cost of one client to other prospective clients.

Fee Justification

The hiring fraternity, be it Managers or HR, increasingly view paying a percentage of salary for a hire as unpalatable and unnecessary. It has no bearing on the work undertaken and no alignment to value. It is an arbitrary (yet lucrative) agency bred construct that is aggressively protected.

Consultants will argue that their fees reflect their industry IP and the knowledge and skills that they bring to Talent Acquisition. This would be a valid claim if there weren’t alternatives. Fortunately, there are alternatives that produce richer outcomes, better mitigate risk, facilitate the improvement of internal capability, provide transparency and are vastly more cost effective.

Building Capability

Progressive organisations recognize the limited value derived from Agency use and baulk at their agency spend. The last decade has seen a rise in engaging partners such as RPOs to improve the value chain. and increasing market expertise in strategic Talent Acquisition has facilitated a shift to organically develop in-house recruitment capability. Early adopters are augmenting their in-house capability by partnering with on-demand time and material TA specialist providers to meet the constraints that occur when fixed recruitment functions cannot cope with moveable needs.

The End of the Era

Contemporary, fee-for-service, on-demand and hybrid solutions, which symbiotically integrate with in-house Talent Acquisition, (people, systems, process and governance), are being delivered by high-achieving career recruiters and talent acquisition professionals and providing qualitative and quantitative benefit; generating savings of up to 75% compared to traditional recruitment agency and search fees.

Recruitment Agencies are making a disingenuous effort to adapt. Small agencies are now ‘boutique’ and claiming niche markets; and multinational volume agencies are consolidating to drive greater cost efficiency and brand power. Irrespective of the label, the agency value proposition hasn’t really changed.

Arguably, the recruitment agency model is at a precipice. Agencies will continue to see their market erode as organisations embrace their In-house Talent Acquisition model as a genuine internal partner and use alternative, complementary and value-driven outsourcing solutions instead of agencies.

One can’t help seeing a parallel with Kodak when they infamously denied the digital future to protect their film, chemical, paper and print business.